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New powers to block suspicious pension transfers

Providers and trustees will have the power to block pension transfer requests if they suspect a member is being scammed, under new measures that come into force this month.

Until now, schemes and trustees could not refuse to carry out a pension transfer where the member or customer had the statutory right to request this, even if they were concerned the cash was headed towards fraudsters.

New rules coming into force from November 30 will give trustees and pension providers power to block or pause a transfer if they have serious concerns about where the money is headed.

“We are tackling the scourge of pension scams in practical terms to safeguard pensioners’ hard-earned savings,” said Guy Opperman, minister for pensions. “These measures will provide better protection for savers.”

Fraudsters use pension freedoms and the statutory right to transfer from one scheme to another to tempt people to hand over their retirement savings.

Under the new powers, schemes will now be able to intervene in a transfer if information they have gathered from the pension customer or scheme member triggers a “red” or “amber” flag.

Circumstances that might trigger a red flag include the member receiving financial advice from an individual without the relevant authorisation. Where amber flags have been raised on a transfer, such as charges at the receiving scheme being unclear or high, the member will be required to take official scams guidance from the government-backed Pension Wise service before the transfer can proceed.

“Today’s confirmation of additional protections for pension scheme members is a major win for common sense over unscrupulous scammers,” said Kate Smith, head of pensions at pensions provider Aegon.

“Trustees and pension scheme providers have long wanted to protect individuals when they fear the risk of a scammer stealing the individual’s life savings and, from later this month, they’ll have greater legal powers to do so.”

Under the rules coming into effect on November 30, all transfers to master trusts, collective defined contribution (CDC) schemes and funded public sector schemes will effectively be exempt as they are regarded as “safe destinations”.

The Pensions Ombudsman service said complaints received after November 30 would be investigated on a case-by-case basis.

Warning signs of scams

What is a red flag?

When a red flag is raised, a pension transfer should not proceed. AJ Bell, the investment broker, said red flag scenarios include cases where:

  • The member has not responded to a request for information in relation to a suspicious transfer

  • The member indicates they have received financial advice from a company without the appropriate regulatory permissions

  • The member has requested the transfer following an unsolicited approach from an individual or firm they had no existing relationship with

  • The member has been pressured, or indicated they felt pressured, to make the transfer.

What are ‘amber flags’?

When an amber flag is raised, the scheme the member is transferring their pension from will be required to direct them to Pension Wise guidance. This guidance will be specifically about scams.

The scheme will also need to confirm the member has received that guidance before letting the transfer go ahead.

Amber flags would be raised where:

  • There are high-risk or unregulated investments included in the scheme the person is transferring to

  • The fees charged by the receiving scheme are unclear or high

  • The proposed investment structures are complicated or unorthodox

  • The receiving scheme includes overseas investments.

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